Coke Looks For Coffee Buzz With Costa Buy

A coffeehouse chain acquisition generated a bit of buzz for Coca-Cola on Friday (Aug. 31). The company said it will buy Costa, a coffee chain, for $5.1 billion.

As part of the deal, Coca-Cola will take over the 4,000 Costa outlets from the U.K.’s Whitbread, and, as Reuters noted, brings Coca-Cola “into one of the few bright spots” across the packaged food and drinks landscape.

It’s also a recent example of how marquee names need and want to diversify beyond what might be their trademarks. The $5 billion purchase price was $1 billion more than some on the Street had expected, showing that Coke is willing to pay up to compete. The battle, at first glance, seems a bit unequal between participants, as Starbucks has 20,000 locations.

This is not Coke’s first dabbling in coffee beans, either, as the company has a coffee business in Japan, via Georgia Coffee. The global coffee market is one that, beyond actual coffee shops, is growing six percent annually, said Reuters. CEO James Quincey of Coca-Cola said that Costa offers up a footprint that Coke does not have across supply chains, vending machines and retail outlets.

That last part — retail — opens the door to an extension for Coke. The company now has entry into the retail market, and joins the extensions seen with other companies, such as Unilever, which owns a gelato firm.

The global coffee market may be growing more swiftly than other sectors, but its $83 billion is dwarfed by the global soft drink market, which is six times larger.

In this shot against Starbucks’ bow, the cross pollination remains palpable. Consider the fact that Nestlé, which has presence in packaged coffee, has signed a licensing deal that, for $7 billion, has given it access into the retail arena. In a continued nod to cross-pollination, Coke could roll out canned or bottled coffee offerings via its famed bottling system.

Regionally speaking, Costa has been boosting its China presence (where Starbucks is doubling its store count), due to saturation and heavy competition in the U.K.

Costa traces its roots back to 1971, and has about 2,400 locations in the United Kingdom, with the remaining 1,400 in international locations.

Whitbread CEO Alison Brittain said Costa was “not interested in a sale other than to somebody who had a strategic rationale and therefore would be able to create significantly more value than Costa could create on its own.”